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Alberto Benegas Lynch (h) dice que la manía del igualitarismo y el resultante ataque a la propiedad privada empezó a volverse sistemático con Platón.
En no pocas personas hay, a veces guardado en el interior, a veces exteriorizado, un sentimiento de envidia, celos y resentimiento por los que tienen éxito en muy diversos planos de la vida. Y estos sentimientos malsanos se traducen en políticas que de distintas maneras proponen la guillotina horizontal, es decir, la igualación forzosa para abajo al efecto de contemplar la situación de quienes, por una razón u otra, son menos exitosos.
Pero estas alharacas a favor del igualitarismo inexorablemente se traducen en la más absoluta disolución de la cooperación social y la consecuente división del trabajo. Si se diera en la naturaleza lo que pregonan los igualitaristas como objetivo de sus utopías, por ejemplo, a todos les gustaría la misma mujer, todos quisieran ser médicos sin que existan panaderos y lo peor es que no surgiría manera de premiar a los que de mejor modo sirven a los demás (ni tampoco sería eso tolerable puesto que el premio colocaría al premiado en una mejor posición que es, precisamente, lo que los obsesos del igualitarismo quieren evitar). En otros términos, el derrumbe de la sociedad civilizada. Incluso la misma conversación se tornaría insoportablemente tediosa ya que sería equivalente a parlar con el espejo. La ciencia se estancaría debido a que las corroboraciones provisorias no serían corregidas ni refutadas en un contexto donde todos son iguales en sus conocimientos. En resumen un infierno.
Este ha sido el desafío de la corriente de pensamiento liberal: como en la naturaleza no hay de todo para todos todo el tiempo, la asignación de derechos de propiedad hace que los que la usen bien a criterio de sus semejantes son premiados con ganancias y los que no dan en la tecla con las necesidades del prójimo incurren en quebrantos. La propiedad no es irrevocable, aumenta o disminuye según la utilidad de su uso para atender las demandas del prójimo. Este uso libre maximiza las tasas de capitalización, lo cual incrementa salarios e ingresos en términos reales. Esto diferencia a los países ricos de los pobres: marcos institucionales que respeten los derechos de todos para lo cual los gobiernos deben limitarse a castigar la lesión de esos derechos.
No se trata de buscar una “justicia cósmica” al decir de Thomas Sowell, sino una terrenal en dirección a “dar a cada uno lo suyo”, a saber, la propiedad de cada cual, comenzando por su cuerpo, la libertad de la expresión del pensamiento y el uso y disposición de lo adquirido lícitamente.
Sería muy atractivo vivir en Jauja donde no hayan terremotos ni sequías ni defectos humanos ni físicos ni mentales, pero la naturaleza es la que es no la que inventamos, de lo que se trata es de minimizar costos, especialmente para los más necesitados.
En cambio, hoy en día observamos por doquier gobiernos que se entrometen en los más mínimos detalles de la vida y las haciendas de quienes son en verdad súbditos de los aparatos estatales, en teoría encargados de proteger a los gobernados, a lo que se agrega el otorgamiento de privilegios inauditos a pseudoempresarios aliados con el poder político para explotar a la gente, endeudamientos estatales mayúsculos, presión fiscal astronómica, gastos públicos siderales y demás estropicios que lleva a cabo el aparato de la fuerza.
Se podrá decir que la guillotina horizontal no es necesaria llevarla al extremo del igualitarismo completo (por otra parte, imposible de realizar dado que cada ser humano es único e irrepetible en toda la historia de la humanidad), con que se “modere en algo” es suficiente. Pues bien, en la medida de que se tienda al igualitarismo, en esa medida surgirán los problemas señalados que, recordemos, siempre redunda en daños especialmente a los más pobres ya que son los que más sienten el impacto de la disminución en las antes referidas tasas de capitalización. El delta entre los que más tienen y los que menos tienen (al momento puesto que es un proceso cambiante) dependerá de las decisiones de la gente que cotidianamente expresan sus preferencias en los supermercados y afines.
Henos aquí que estos problemas y la manía del igualitarismo y el consecuente ataque a la propiedad privada comenzó a sistematizarse con Platón cuatrocientos años antes de Cristo. Platón en La Repúblicay en Las Leyes patrocina el comunismo, es decir, la propiedad en común y no solo de los bienes sino de las mujeres, en esta última obra dice el autor que su ideal es cuando “lo privado y lo individual han desaparecido” lo cual nos recuerda que con razón Milan Kundera concluye que cuando “lo privado desaparece, desaparece todo el ser”. Claro que Platón no vivió para enterarse de “la tragedia de los comunes”, aunque de modo más rudimentario la explicó su discípulo Aristóteles quien además destacó que los conflictos son más acentuados cuando la propiedad es en común respecto a la asignación de derechos de propiedad.
Claro que los autores que con más énfasis propusieron la liquidación del derecho de propiedad fueron Marx y Engels que en su Manifiesto Comunistaescribieron que “la teoría de los comunistas se puede resumir en una sola frase: la abolición de la propiedad privada”.
Esta declaración marxista se subsume en la imposibilidad de evaluación de proyectos, de contabilidad, en definitiva, de todo cálculo económico puesto que cuando no hay propiedad no hay precios (que surgen del intercambio de propiedades), con lo cual no se sabe si es mejor una asignación de los siempre escasos recursos respecto de otro destino tal como lo explicó detalladamente Ludwig von Mises. En otros términos, no existe tal cosa como una economía socialista o comunista (Lenin escribió que el socialismo es solo la primera etapa para llegar al comunismo), de allí el descalabro que exhibió el derrumbe del Muro de la Vergüenza en Berlín.
Nuevamente reiteramos que no es necesario abolir la propiedad para que aparezcan los trastornos que señalamos en la medida en que se afecte esa institución clave. Cuando irrumpen los megalómanos concentran ignorancia en lugar de permitir la coordinación de conocimiento disperso a través del sistema de precios libres (en realidad un pleonasmo ya que los precios que no son libres resultan ser simples números que dicta la autoridad gubernamental pero sin significado respecto a la valorizaciones cruzadas que tienen lugar en toda transacción voluntaria). Con esos supuestos controles los gobernantes imponen sus caprichos personales con lo que indefectiblemente aparecen faltantes y desajustes de diverso calibre.
Además, la manía igualitarista presupone la falacia que la riqueza es estática y que se basa en la suma cero (lo que uno gana lo pierde otro). Sin duda que la utopía comunista no es patrimonio exclusivo de Marx, hubo un sinfín de textos en esa dirección como los de Tomás Moro, Tommaso Campanella, William Godwin y no pocos religiosos desviados del mensaje cristiano de la pobreza de espíritu. Tal vez en este último caso sea pertinente detenerse a considerarlo.
Dos de los mandamientos indican “no robar” y “no codiciar los bienes ajenos”. En Deuteronomio 27, 17 se lee “Maldito quien desplace el mojón de su prójimo”, también en Deuteronomio (8, 18) “acuérdate que Yahveh tu Dios, es quien te da fuerza para que te proveas de riqueza”. En 1 Timoteo (5, 8) “si alguno no provee para los que son suyos, y especialmente para los que son miembros de su casa, ha repudiado la fe y es peor que una persona sin fe”. En Mateo (5, 3) “bienaventurados los pobres de espíritu porque de ellos es el reino de los cielos” fustigando al que anteponga lo material al amor a Dios (amor a la Perfección), en otras palabras al que “no es rico a los ojos de Dios” (Lucas 12, 21), lo cual se aclara la Enciclopedia de la Biblia (con la dirección técnica de R. P. Sebastián Bartina y R. P. Alejandro Díaz Macho bajo la supervisión del Arzobispo de Barcelona): “fuerzan a interpretar las bienaventuranzas de los pobres de espíritu, en sentido moral de renuncia y desprendimiento” y que “ la clara fórmula de Mateo —bienaventurados los pobres de espíritu— da a entender que ricos o pobres, lo que han de hacer es despojarse interiormente de toda riqueza” (tomo vi, págs. 240/241). En Proverbios (11,18) “quien confía en su riqueza, ese caerá”. En Salmos (62, 11) “a las riquezas, cuando aumenten, no apeguéis el corazón”. Este es también el sentido de la parábola del joven rico (Marcos 10, 17-22) ya que “nadie puede servir a dos señores” (Mateo 6, 24).
Lamentablemente hoy día las cosas han cambiado en el Vaticano, en este sentido y con independencia de otros párrafos véase con atención un pasaje donde queda evidenciado lo que escribía el papa León xiii en la primera Encíclica sobre temas sociales que a continuación reproduzco para destacar que nada ni remotamente parecido fue hasta ahora escrito o dicho por Francisco sino que viene afirmando todo lo contrario en cuanta oportunidad tiene de expresarse.
“Quede, pues, sentado que cuando se busca el modo de aliviar a los pueblos, lo que principalmente, y como fundamento de todo se ha de tener es esto: que se ha de guardar intacta la propiedad privada. Sea, pues, el primer principio y como base de todo que no hay más remedio que acomodarse a la condición humana; que en la sociedad civil no pueden todos ser iguales, los altos y los bajos. Afánense en verdad, los socialistas; pero vano es ese afán, y contra la naturaleza misma de las cosas. Porque ha puesto en los hombres la naturaleza misma grandísimas y muchísimas desigualdades. No son iguales los talentos de todos, ni igual el ingenio, ni la salud ni la fuerza; y a la necesaria desigualdad de estas cosas le sigue espontáneamente la desigualdad de la fortuna, lo cual es por cierto conveniente a la utilidad, así de los particulares como de la comunidad; porque necesitan para sus gobiernos la vida en común de facultades diversas y oficios diversos; y lo que a ejercitar otros oficios diversos principalmente mueve a los hombres, es la diversidad de la fortuna de cada uno”. Y, por su parte, el papa Pio xi, al conmemorar la Encíclica de León xiii, consignó que “nadie puede ser, al mismo tiempo, un buen católico y verdadero socialista”.
Y como, entre otros, explicaba Eudocio Ravines, “el socialismo no trata de una buena idea mal administrada, se trata de una pésima idea que arruina a todos, lo cual comienza con pequeñas intervenciones estatales que escalan ya que un desajuste lleva a otra intromisión y así sucesivamente”. En esta línea argumental subrayaba Alexis de Tocqueville: “Se olvida que en los detalles es donde es más peligroso esclavizar a los hombres. Por mi parte, me inclinaría a creer que la libertad es menos necesaria en las grandes cosas que en las pequeñas, sin pensar que se puede asegurar la una sin poseer la otra”. En resumen entonces, los yerros más gruesos y dañinos en materia social comenzaron con Platón los cuales deben refutarse para evitar males, especialmente para proteger a los más necesitados que son siempre los que más sufren los embates de políticas equivocadas.
Calentando motores para Sant Jordi (1).
Lista de libros (por Miguel Anxo Bastos)
Bonus Tracks (en construcción)
It may seem unusual that an economist would talk about culture. Usually, we talk about prices and production, quantities produced, employment, the structure of production, scarce resources, and entrepreneurship.
But there are certain things that economists can say about the culture, and more precisely, that economists can say about the transformation of the culture. So what is culture? Well, to put it simply, it is the way we do things. This can include the way we eat — whether or not we dine with family members on a regular basis, for example — how we sleep, and how we use automobiles or other modes of transportation. And of course, the way we produce, consume, or accumulate capital are important aspects of the culture as well.
Limiting Budget Is the Key to Limiting Governments
Now to understand the effects of fiat money on the culture, we must first look at the relationship between financial systems and the nature of government.
A number of economists have observed that fiat money is a prerequisite for tyrannical government, and the idea that monetary interventionism paves the way for tyrannical government is very old and goes back to Nicolas Oresme in the fourteenth century. It has not been emphasized in the twentieth century, but Ludwig von Mises is among the few who has stressed the importance of this relationship.
Mises said that when it comes to limiting government power, it is essential that the government is financially dependent on the citizens, and this addresses the fundamental political problem of controlling the people in office once they are there. We know that generally, once they are in office, elected politicians turn around and do very different things than they said they would do, with many acting contrary to the common good and interests of their constituents.
So how do we ensure that the people in power can be controlled?
Mises tells us the way we control government is through the budget, and this is necessary in a free society. In a democratic system, at least, we elect certain people to the government, and they often enter office believing that they have a mandate to do certain types of things while in office.
But it’s not sufficient that the people tell government officials what they should be doing. It is equally important, if not more important, to dictate how much money the government will have to achieve those ends. So, it is not enough to tell the government that it will only protect private property. This mandate could be pursued with $100,000 or a billion dollars depending on what the people are willing to pay. So if the budget it not controlled, a limited mandate in itself offers no limitation on taxation or how much money is spent.
Mises believed that those who paid the taxes would then need to specifically limit the size of the government budget. The mission of the government does not by itself deter- mine the amount of resources to be used in the mission.
In response, many will complain that if budgets are tightly controlled, then we’ll never have an increase in government services because people hate taxes. That might be so, but, of course, that is the point.
Now, if we abandon a strict connection between what the citizens pay and what government spends, then we find that we move away from rule by the citizens who are being taxed, and toward greater rule by the elites.
The first way this shift can happen is by the government going into debt. The financial relationships then shift toward the new group that is funding the government, namely those who are extending credit to the government. This then weakens the relationship to the citizens who are being taxed, and it also allows the government to spend more money than would have been possible with taxation alone.
Now of course fiat money allows government to take out loans to an unlimited extent because fiat money by definition can be produced without limitation, without commercial limitation or technological limitation, and can be produced in whatever amount is desired. In this way, the government benefits from the support of a central bank, which is to be expected because the central bank itself depends on the legal framework of monopoly provided by the government.
Through these means of finding government revenues outside of directly taxing the population, we see then that fiat money allows for an extension of government activities unconnected to the willingness of the population to actually support revenue increases. In turn, the government’s rule becomes rule by elites such as central bankers and financiers rather than rule by the taxpayers, and the government’s ability to spend becomes more dependent on the ability to access fiat money than the ability to convince the citizens to accept a higher tax burden.
The Cultural Features of a Debt Economy
Now we come to the many ways through which a fiat money system affects the behavior of ordinary citizens.
One of the central features of a fiat money system is that it tends to produce near-permanent price inflation. This contrasts with the workings of an economy based on natural monies such as gold and silver. Here the price levels tend to stay flat over the long run or decline, especially in the presence of vigorous economic growth. We saw this throughout the nineteenth century in both Europe and the US, where deflationary growth has been the rule.
The reality of price inflation shapes culture in a variety of ways and much of this is deliberate, as it has long been an idea among government planners and ideologues of all sorts, even before Keynes, that ordinary people should be prevented from “hoarding” money at their homes.
In a free economy with a natural monetary system, there is a strong incentive to save money in the form of cash held under one’s immediate control. Investments in savings accounts or other relatively safe investments also play a certain role, but cash hoarding is paramount, especially among low-income families.
By contrast, when there is constant price inflation, as in a fiat-money system, cash hoarding becomes suicidal. Other financial strategies now become more advisable. It becomes advisable to exchange one’s cash for “financial products,” thus offsetting the loss of purchasing power of money through the return on that financial investment. It also becomes advisable to go into debt and leverage one’s investments. In a word, it becomes rational to pursue riskier investments in order to find a rate of return that can match or exceed the rate of price inflation. This is true across all sectors, including households and productive operations.
Before the twentieth century and widespread access to fiat money, debt was far less common and there were cultural imperatives against going into debt for consumption. Credit for households, for example, was virtually unknown before the twentieth century, and only very poor households fell back on debt to finance consumption.
But in a fiat money system, as price inflation diminishes the value of one’s monetary savings, we are encouraged to adopt a short-term perspective. That is, we need to hurry up to obtain credit as soon as possible and obtain revenue from that debt as soon as possible, because savings lose value if we just hold on to cash.
It no longer makes sense to save up money for a decade to buy a house, for example. It is much more opportune to go into debt to buy a house immediately and to pay back the loan in devalued money. There is then a generalized rush into leverage in a fiat money system since debt- financed investment brings greater returns than savings in cash or equity-financed investments.
It needs to be stressed that this tendency has no natural stopping point. In other words, fiat-money systems tend to make people insatiable in their quest for ever higher monetary returns on their investments. In a natural monetary system, as savings increase, the return on investments of all sorts diminishes. It becomes ever less interesting to invest one’s savings in order to earn a return, and thus other motivations shift into the foreground. Savings will be used increasingly to finance personal projects including the acquisition of durable consumers’ goods, but also philanthropic activity. This is exactly what we saw in the West during the nineteenth century.
By contrast, in a fiat money society, you are more likely to increase your returns by remaining in debt and continuing to chase monetary revenue indefinitely by leveraging more and more funds.
You can imagine, then, how this inflation and debt- based system, over time, will begin to change the culture of a society and its behavior.
We become more materialistic than under a natural monetary system. We can’t just sit on our savings anymore, and we have to watch our investments constantly, and think about revenue constantly, because if it is not earning enough, we are actively getting poorer.
The fact that the fiat money system pushes us into riskier investments also increases dependency on others because one must depend on the good behavior of those on whom the value of our investments depend.
Similarly, the stronger the level of debt the stronger is the selfish concern about the behavior of others who may owe us money. So fiat money creates an attempt to control others through the political system.
But at the same time, no household and no firm individually has an interest in abolishing the fiat system and putting in its place a natural monetary system. The short-term costs of such a transition would be immense. In this, we see that we are in a “rationality trap” in which one is motivated to maintain the fiat money system in spite of all its downsides, and because the culture at this point is so transformed by more than a century of easy access to fiat money.
We can apply economic analysis to explain cultural transformation, and a particularly important example is fiat money. It has a very important impact on our culture. This is something we would not see unless we step back and take a longer-term historical perspective. Of course, there are many other factors that come into play, but fiat money is an important factor, and the system is perpetuated by the fact that everyone stands to lose in the short run if the current system ceases to function. Moreover, given how our modern culture has been so shaped by fiat money systems, it runs against the very cultural foundations of our current society. In spite of the many short-term costs, we should nonetheless dare to change this system, and it is ultimately a question of courage, and insight, and of the will.
Credit and debt are more than just rational material exchanges within a market economy. They are socially constructed and center on matters of hard moral judgments about character, equity, and “good conscience.” These judgments are, in turn, bound up with powerful emotions of resentment, shame, and humiliation. Changing and conflicting representations of personal credit and debt deeply affect the power and welfare of states.
A diversity of social meanings has been attached to debt over time. And yet certain patterns do recur. In various European languages debt co-occurs with “bondage,” “freedom,” “gratitude,” and “honor,” as in “freedom from debt,” “debt of gratitude,” and “debt of honor.”
In Dutch and German, the word Schuld means both debt and guilt. A similar linguistic association is found in the Hebrew word Chayav. These terms illustrate the deep-seated cultural anxiety attached todebt and the powerful feelings of shame it can provoke. For Germans, the fabled Swabian housewife is the traditional cultural icon of virtuous economic conduct: One should “live within one’s means.” German Chancellor Angela Merkel appropriated this icon in justifying her policies regarding the post-2010 euro area sovereign debt crises.
Reflecting his German context, Friedrich Nietzsche offered an anthropological account of the historical association of guilt with indebtedness (das Schuldgefühl). He stressed that debt was bound up with the moralization of concepts of duty, honor, self-esteem, and standing. In On the Genealogy of Morals, Nietzsche looked back to the “oldest and most primitive” personal relationship between creditor and debtor as the origin of how “one person first measured himself against another.”
Indeed, credit and debt did pre-date money. They took the form of favors among friends and neighbors, which created personal moral obligations. Later, the creation of money provided a unit of account for keeping track of debts. More importantly, it led to a de-personalization of creditor-debtor relations, making commercial society possible. This evolution was bound up with the innovation of posting and exacting collateral. In this way, debt became bound up with the threat, and often reality, of the erosion of freedom, not just for individuals but for entire families. They found themselves in a condition of “debt slavery.”
Because of the connotation of enslavement, revolutionary changes of power, or the accession of new rulers, frequently brought with them debt cancellations and destruction of debt records. The first recorded example of this appears to be in 2400 BC by King Enmetena in the Sumerian city-state of Lagash in Mesopotamia. Thereafter, the biblical proverb “The rich rules over the poor, and the borrower is servant to the lender” was used to justify the cancellation of “odious” debts after regime change. It was also used in condemnation of debtors’ prisons, for instance in the works of Charles Dickens.
From the eighteenth century onward, there were two main catalysts for rethinking notions of debt. The first was the rise of a new commercial society, which was associated with property rights and the multiplication of contractual relations, encouraged above all by the use of collateral to expand credit. Parties normally ineligible to borrow were able to enter into credit transactions. The consequence was a society in which creditor–debtor relations assumed central social and political significance, represented by an aspiring merchant-financier class, rentiers, and newly self-confident professions of accountancy and law.
The second catalyst for rethinking debt was the birth and huge increase in public debt. This transformation opened up the question of whether this development was a force for good or ill. In France, for example, the ruinous French royal finances in the eighteenth century had a profound effect on economic thinking. The French philosopher Montesquieu expressed his anxiety in The Spirit of the Laws. Public debt, he wrote, “takes the true revenue of the state from those who have activity and industry, to convey it to the indolent: that is, it gives facilities for labor to those who do not work, and clogs with difficulties those who do work.”
Meanwhile, the Scottish thinkers David Hume and Adam Smith feared that the seductions of publicdebt were corrupting states and generating a politics of illusion and hubris. Public debt financing facilitated ruinous wars in Europe and underpinned the vain pursuit of empire in the Atlantic, the Mediterranean, and India. It also enlarged political patronage, creating a mutual dependence between states and creditors that led to oligarchy and factionalism and risked the collapse of public virtue.
The debate about whether public debt promoted the virtues of commerce or the vice of profligacy was also at the heart of the acrimonious dispute between Alexander Hamilton and Thomas Jefferson in the wake of the U.S. War of Independence. In the name of virtue, Jefferson attacked Hamilton’s pursuit of public debt financing, commercial empire, and executive patronage. He argued that the priority should be to freeing the new nation of debt. In an 1809 letter to the U.S. Secretary of the Treasury Albert Gallatin, Jefferson claimed:
There does not exist an engine so corruptive of the government and so demoralizing of the nation as a public debt. It will bring on us more ruin at home than all the enemies from abroad against which this army and navy are to protect us.
From the mid-nineteenth century on, though the emerging German historical and institutional school of economics took a very different view of public debt from that of Montesquieu, Hume, Smith, and Jefferson. They were united in the view that public debt was an integral part of national economies. The thinkers Karl Dietzel and Lorenz von Stein believed that the state had a positive role to play in balancing the economy, above all by financing productivity-enhancing investment in infrastructure and public provision. Dietzel, for one, argued that, “A nation is so much the richer and its national economy so much more blossoming and progressing, the greater the ratio of interest payments on government bonds in total government outlays is.” And, for his part, Stein stressed the role of public debt as collective insurance, above all in helping provide for old age, and thus in promoting social and political integration. However, he became aware that public debt could be politically abused to finance current consumption rather than productivity-enhancing investment. Hence, Stein called for a constitutional safeguard against this misuse, a form of “golden rule” in public finances later taken up in the Basic Law of the German Federal Republic.
The belief in the usefulness of debt seemed to triumph over Montesquieu, Hume, Smith, and Jefferson’s aversions. Levels of public debt of over 100 percent of GDP were far from exceptional in the nineteenth and twentieth centuries. Political economy changed profoundly as new social forces entered the political arena. Public debt grew with the radical transformation of the technology, scale, and conduct of war. New communication technologies enabled cross-nationally mobile credit. And the concentrated structure of financial markets made public balance sheets more vulnerable to big banking crises.
That vulnerability only grew with new private-sector technologies of credit creation. In addition, the secularization of society eroded attachment to inherited religious and folk beliefs about debt. It was accompanied by new belief in the scientific management of public finances, including creative financial engineering. These factors combined to facilitate the emergence of new, less constraining ideologies of debt. Gone were the days in which, intellectually, the dominant role of prudence or practical wisdom in reasoning about virtuous private and public conduct acted as an inhibition ondebt.
A key aspect of this revolution was the increasingly abstract nature of money. The German author Johann Wolfgang von Goethe gave dramatic expression to the loosening sense of guilt that was associated with the move to fiat currency. In FaustPart Two, Mephistopheles advises the Holy Roman Emperor:
Such paper, in the place of actual gold, is practical: we know just what we hold…But wise men will, when they have studied it, place infinite trust in what is infinite.
By the late twentieth century, the loosening of the sense of constraint and guilt attached to debt took a radically new form. Consumers and investors could make use of electronic money. The age of cyberfinance reshaped attitudes toward credit: “Money is now endless,” the economist Satyajit Das wrote in Extreme Money, “capable of infinite multiplication and completely unreal.” It also created a widespread sense of confusion, unease, and alarm about the implications for the behavior of banks and for how central banks managed money, for instance quantitative easing.
The implications of decline in prudence became ever more serious with the huge growth in the scale of financial assets; with the size, complexity, and opacity of the financial institutions managing these assets; and with the proliferation of ever-more exotic credit instruments, like securitization and collateralized debt obligations. Science-based models induced the illusion that credit risks were better controlled. And the ease of credit creation enabled hubris on a historically new scale.
Changes in attitudes to debt and risk were also bound up with new discourses about social entitlement. Consumer expectations of ever-higher living standards were fuelled by more lenient and readily available bank lending, the subsequent booms in construction and property market sectors, and the expansion of retail sectors, modern advertising, and marketing. Social status and identity became closely associated with consumption, in particular with the concept of luxury. Identifying oneself with the good life meant being able to live beyond traditional understandings of basic needs.Debt was the price one paid for the joys of being part of a hedonistic consumer culture. Its denial had the potential to foster a deep sense of loss, despair, social protest, and riot.
Twentieth-century discourse illustrated the profound moral ambiguities associated with debt—and the associated difficulties in framing and using state power. On the one hand, social entitlement, market society, hedonistic consumer culture, and neo-Keynesian economics suggest that the old idea of prudence had been fully dethroned. On the other hand, the notion that the state is “the household writ large” retained a continuing hold on popular imagination. The portrayal of political leaders and parties as feckless in managing public finances, as presiding over excessive public debt, and as in collusion with over-powerful bankers, invited electoral punishment. Evidence suggests that aligning oneself with debt reductionattracts broad public support. Despite neo-Keynesian macroeconomic insights, and modern consumer, financial, and promotional cultures, states still occupy a political world in which folk beliefs about debt retain a strong hold on how leaders behave. The more practical problem stems from the paradox that, although voters want action to tackle debt in the aggregate, few are ready to accept the ensuing consequences.
MORALITY AND DEBT
How far, and in what ways, is debt “bad”? What is the appropriate behavior of both creditors and debtors? What is the proper balance between, on the one hand, systemic stability and collective solidarity and, on the other, avoidance of moral hazard in managing sovereign debt? Who are the innocent victims and who, in the interests of fairness, should bear the fiscal pain of macroeconomic adjustment? How far should institutional feasibility define and, if necessary, restrict responsibility?
At the heart of many of these questions is the way in which creditor-debtor relations form a dyad. There cannot be creditors without debtors, any more than “surplus” states without “deficit” states in trade. In short, although their relationship is unequal, creditors need debtors. Moral ambiguity—and the absence of easy political solutions—originates from the problem of balancing the claims of creditors to superior virtue and uniqueness with those of debtors for recognition and honor. It can, in principle, be addressed by procedural rules that bridge different moral positions and overcome power differentials. In their absence, there is high risk of grievance, harassment, despair, and victimhood.
Credible commitment to such procedural rules depends on creditors’ recognition that adjustments cannot be made by debtors alone. The political difficulties lie in how to get each to face up to the implications of the mutual, asymmetric dependence of creditor and debtor states. Their relationship has features of a prisoners’ dilemma, in which neither side can defect without causing serious damage to the other. Managing this dilemma is easier when the institutional conditions are in place to help sustain an evolutionary, stable pattern of conditional cooperation. As with the euro area, a set of rules of the game that encourage repeated interactioninduce cooperation. However, risks remain. Creditor-state elites retain a paramount interest in limiting their liability. Moreover, one, or both parties, faced with deeply unpalatable choices, may choose to pursue a game of chicken, in which the bluff of the other is called. And, miscalculation can have high costs for all.
The politics of creditor–debtor relations are exacerbated by a moralizing language of “saints” and “sinners,” which is laced with feelings of pride in national virtue, on the one side, and of shame, humiliation, and resentment, on the other. Esoteric technical vocabulary and efforts to construct inclusive processes of debate and negotiation cannot hide the extent to which the idea of sovereign creditworthiness is a world of identities and symbolism, to which powerful, historically grounded, and often idiosyncratic feelings are attached.
Qualitative advancement in thinking about creditor-debtor relations and sovereign creditworthiness thus depends on strengthening their ethical dimension and promoting cultural change in two ways.
First, analysis of sovereign creditworthiness needs to move beyond a narrow, utilitarian, and financial view of balance sheets. It must also examine outcomes from longer-term and society-wide perspectives. This more expansive view involves taking account of wider expectations with respect to governance, social welfare, and environmental quality. A critical reexamination of sovereign creditworthiness reveals ethical questions about the operation and power of financial markets, including the net social value of financial innovations like derivatives and securitization.
Deep analysis suggests changes in the functioning of financial markets, including credit rating agencies, to reduce conflicts of interest, increase transparency, and avert excessive risk-taking through financial instruments of questionable net social value. One option is to rely on improvements in internal governance within financial markets. Examples include changes within credit rating agencies and greater accountability of managers for long-run performance, notably by changes to bank bonus practices. However, Turkeys do not vote for Thanksgiving, to paraphrase the British saying. External pressure from supervisors and regulators is required.
Secondly, there need to be corrections to the political short-sightedness that so often bedevils—and raises the costs—of debt crises. Political leaders of creditor states have great difficulties in persuading their domestic political elites and publics to make short-term sacrifices as taxpayers for long-term gains from avoidance of debt default and the systemic risks that follow. This problem is greater when it involves rescuing states, such as Greece and Cyprus, that are judged to be plagued by endemic corruption and failing governance capacity.
Within the euro area, the German federal government hesitated over the Greek bailout for some four months from January-February 2010, till after key elections. The German media was littered with images of lazy, corrupt, and featherbedded Greeks, enjoying pensions much earlier than Germans. They portrayed a bloated, privileged Greek public sector of unknown dimensions. These images ignored the reckless lending by German and other EU banks to Greece. In the end, German hesitation contributed to higher final costs of the eurozone-IMF bailout in May 2010. Political leadership is a tough call when it seeks to reframe moral arguments in terms that more judiciously apportion blame. As the Greek crisis gathered momentum in 2011–12, German political leadership instead resorted to dramatization of the existential threat to the eurozone and the European Union in order to overcome the deep reluctance of elite and public opinion to shoulder the costs of further financial assistance.
Better management of sovereign debt crises, though, goes to the heart of the functioning of liberal democracies. Current practices highlight the risks of disconnection between, on the one hand, domestic political competition and electoral choices and, on the other, policies to restore sovereign creditworthiness that are negotiated or imposed internationally. Disconnection is revealed in the growth of popular alienation from conventional forms of politics. In this context, space opens for populist political mobilization against external diktat, benefitting far Left and far Right parties. This phenomenon was apparent in the electoral performance of the National Front in the French Presidential and Assembly elections of 2012, of Syriza in the two Greek elections of 2012, and of the Five-Star Movement in the Italian elections of 2013.
THE RECKLESS, THE FECKLESS, AND THE INNOCENT
Creditors are prone to be seen as “saints,” debtors as “sinners.” Virtue is attached to the former (prudence, hard work), and vice to the latter (fecklessness, laziness). This kind of language puts at stake dignity, honor, and mutual respect. It arouses base as well as noble emotions, including resentment, grievance, and rage. The moral and emotional dimensions of debt are intimately intertwined.
To be effective, those managing sovereign debt crises have to be acutely sensitive to this powerful psychological dimension. Otherwise, those on the receiving end of punitive adjustments will mobilize to express their outrage. Building credibility in sovereign bond markets became mainstream in macroeconomic theory after the 1970s: What mattered for sovereign creditworthiness was management of market expectations, a key element of which was financial market psychology. States had to restore their credibility by increases in taxation, reductions in public-sector employment and wages, and benefit cuts. They had to align themselves with the technocratic nostrums of unelected bodies: central banks, international financial institutions, and financial market lobbies.
However, credibility in this narrow sense is only part of a much bigger and more complex political story about how states best sustain their reputation and power. The politics of sovereign creditworthiness is about the capacity to distinguish the legal contract governing creditor–debtor relations from the wider social contract on which governance is supposed to rest. The indicators of loss of creditor confidence are higher interest rates on debt. The indicators of loss of public confidence are social protest, electoral gains for extremist parties, and the drift of centrist parties toward the embrace of extremist positions.
Talking about creditors and debtors without implicit judgments about moral worth is very difficult—but it is time to do so.